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Landlords Urged to Check Letting Agreements

On the 22nd February 2010, the Office of Fair Trading obtained an order in the high court, that saw the letting agent Foxtons, banned from using certain terms in it’s letting agreements with landlords. A clause in the contracts allowed the agent to charge landlords commission even if it did not have to find them a new tenant. Further, the contracts also stated that in the event that the property was sold to the tenant, then the landlord would be liable to pay commission to the agent even if the agent was not involved in negotiating the sale. This ruling means that Foxtons will not be able to enforce any existing contracts with landlords and further, it will be unable to use them in any new contract wordings. It was widely thought within the industry that Foxtons would appeal against this ruling, (originally made in July 2009) but rather surprisingly, it’s has declined to do so.

The original case was brought against Foxtons by the Office of Fair Trading in July 2008 and there were three aspects of the agents terms and conditions queried:-

  1. The agents right to demand a sales commission should the tenant of the property decide to purchase the property from the landlord.
  2. The agents right to demand agency fees from a landlord after the property had been sold to a Third Party
  3. The agents right to charge renewal fees if a tenant theyd originally provided decided to renew a tenancy after the original contract end.

Last July, Foxtons was found to be breaching unfair terms and conditions regulations by charging landlords a commission of 2.5% in the scenario where a tenant purchased the property from the landlord. Further they were charging ‘renewal’ commission when a tenant opted to remain at a property for longer than the initial term of the agreement.

It was perhaps the last of these three conditions that caused the most angst amongst landlords, many questioned why an agent should be entitled to a renewal commission when they had not done any work in locating a new tenant. This ‘money for nothing clause’ polarises opinion, agents like it, landlords don’t. However, the simple fact of the matter is that if the condition is clearly detailed in a contract (so the landlord can view it) they always have the option of not signing the contract. In essence, there is nothing wrong with charging fees (everyone has to make a living and Letting Agents are are a business after all) providing the landlord is clearly made aware of them before signing the contract wording.

It is now thought that as a result of this action, thousands of landlords are in for a refund after the Office of Fair Trading (OFT) confirmed that it was writing to a number of letting agents warning of unfair contract terms. It is thought that Foxtons are not alone it using this style of contract, in fact it is probable that many of the country’s 15000 letting agents do the same) and given that the United Kingdom has some 1 million buy to let landlords, there could be substantial claims for compensation. The Office of Fair Trading has confirmed that it expects all letting agents to comply with the ruling.

Owners of Buy to let property, regardless of their experience or number of properties owned should always study letting agents most carefully, particularly the ‘small print’. it’s easy just to give a document a cursory glance but the detail should always be studied most closely to avoid surprises at a latter date,

At Assetsure you can find out more about overseas property insurance and understand some basic holiday home investment tips.

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